Trump’s Trade War Gamble: Markets Tumble as Canada, Mexico, and China Hit Back

Donald Trump has done it again. In a move that has sent shockwaves through global markets, the former U.S. President on Saturday slapped a 25% tariff on imports from Canada and Mexico, while hitting China with a 10% duty. The decision, set to take effect at precisely 05:01 GMT (12:01 WIB) on Tuesday, is being justified as a necessary step to combat illegal immigration and the drug trade. But behind the political rhetoric, the real consequences are already beginning to unfold.

Canadian Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum wasted no time in responding, announcing tit-for-tat tariffs on American goods. Meanwhile, Beijing has vowed to challenge the legality of Trump’s decision at the World Trade Organization (WTO), setting the stage for yet another round of economic conflict between the world’s largest economies.

Investors across the Asia-Pacific region woke up to a rude shock as futures markets opened sharply lower. The S&P 500 futures took an immediate 1.40% hit, while risk appetite evaporated almost overnight. Traders scrambled to reposition, seeking refuge in the one asset that has historically been the ultimate safe haven—the U.S. dollar. But in a surprising twist, gold—a traditional risk-off asset—suffered as investors liquidated positions to cover losses elsewhere.

The ‘sell everything’ panic mode took hold early, with equities, commodities, and even crypto markets seeing broad-based declines. This aggressive risk-off shift was compounded by concerns over China’s potential countermeasures. While Beijing has not yet detailed its retaliation strategy, analysts believe it is only a matter of time before it unleashes a wave of restrictive trade policies aimed squarely at the U.S. economy.

Gold, which had just touched record highs last week, found itself under selling pressure as profit-taking ensued. Spot gold prices retreated from recent peaks, with traders taking risk off the table in preparation for what could be a prolonged period of economic uncertainty. However, if China fires back with its own tariffs and the risk-off sentiment deepens, gold could find fresh support as investors flee to inflation hedges.

And that’s exactly where the bigger picture lies. Trump’s tariffs are inherently inflationary. By raising costs on imported goods, U.S. domestic prices could rise, forcing the Federal Reserve into an even trickier position as it balances inflation management with economic stability. If inflation expectations tick higher, gold—historically a hedge against rising prices—could see renewed demand.

Adding to the uncertainty, U.S. manufacturing data is set to be released later today, with the ISM Manufacturing PMI report expected to offer crucial insights into the strength of the American economy. Across the Pacific, China’s Caixin Manufacturing PMI has already sent a warning signal, coming in at 50.1 for January—dangerously close to contraction territory. Any further weakness could reinforce fears of a global economic slowdown.

Traders are also keeping a close eye on Federal Reserve policymakers, whose speeches throughout the week could provide hints on future monetary policy moves. A hawkish stance from the Fed could further strengthen the U.S. dollar, exerting more pressure on commodities, while a dovish tone might provide some relief to risk assets.

From a technical perspective, gold’s short-term outlook remains constructive as long as the 14-day Relative Strength Index (RSI) holds above 50. Currently sitting near 63.50, it suggests that bullish momentum remains intact—at least for now. But the metal faces a crucial test in the coming days.

A sustained push above $2800 would set the stage for a retest of the all-time high at $2817, with the next key upside hurdle sitting at the psychologically significant $2850 level. On the downside, a deeper pullback could bring the January 30 low of $2754 into play, with further support resting at $2731. The final line of defense for gold bulls? The 21-day Simple Moving Average (SMA) at $2721.

For now, gold traders are closely watching price action around the uptrend line. Confirmation of bullish signals could provide opportunities for strategic entries. A strong buy zone has been identified between $2771.07 and $2760.87, with stop-loss (SL) placed at $2741.53. Take-profit (TP) levels are set at $2790.16, $2812.59, and $2835.61 respectively.

As markets brace for more turbulence, one thing is clear—Trump’s trade war is far from over. Whether his latest gamble will yield political gains or economic ruin remains to be seen. But for now, traders are left navigating an increasingly volatile landscape, where every move comes with high stakes and even higher uncertainty.